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During a panel discussion at Mediabistro's Inside Bitcoins
conference in New York City on Tuesday, one of the panelists,
serial entrepreneur Brock Pierce, posed a question: "Is Bitcoin
Friendster, MySpace or Facebook?"

In other words, is Bitcoin here to
stay, or will it soon decline or disappear altogether, taking
investor dollars with it?

That's the question on the minds of entrepreneurs, venture
capitalists and laypeople alike. In simple terms, Bitcoin is both
a decentralized, open-source digital currency and a peer-to-peer
payment system. Users are able to send bitcoins to each other
over the Internet, and to convert them into fiat currency, such
as U.S. dollars and euros, and back again using online exchange
platforms. Cryptographic procedures enforce scarcity and ensure
the security of transactions.

Once the preserve of hackers and crypto-geeks, Bitcoin is
increasingly being seen as a legitimate platform on which to
build businesses. The Winklevoss twins, known for their tussle
with Mark Zuckerberg over the ownership rights to Facebook, led a
$1.5 million investment in payment processing platform BitInstant
earlier this year.

But while some high-profile investors are taking a chance on it,
Bitcoin remains a volatile market. When you invest in a Bitcoin
company, you're taking a risk not only on that startup but also
on the overall Bitcoin space, said Pamir Gelenbe, partner at
Hummingbird Ventures, a European early-stage venture fund, during
Tuesday's panel.

Gelenbe compared the current Bitcoin landscape to that of
Internet companies in 1994, in the sense that outsiders view the
space with skepticism. He and other investors on the panel said
they look for entrepreneurs with a solid track record. "I'm
excited about the leap that's occurring from semi-professionalism
to companies that will be around for a while," said Tuur
Demeester, author of investment newsletter MacroTrends. Demeester
recommended Bitcoin to his readers as an investment in early
2012, when its exchange rate was only $5.

Demeester believes an opportunity exists for new Bitcoin exchange
markets, although established exchanges such as MtGox and
Bitstamp currently handle a combined 70 percent of all U.S.
Bitcoin trade, according to Bitcoin Charts. Gelenbe, however,
said his firm wants to invest in companies, not in currencies; he
would prefer to fund startups that could easily switch over to
other digital currencies that may gain primacy and ones which are
not likely to face regulatory trouble.

The total value of all bitcoins in existence, currently 11.5
million, has increased from about $10,000 three years ago to
about $1 billion today. Between July 2012 and April 2013, the
price of a Bitcoin rose from about $10 to an all-time high of
$266 before plummeting spectacularly below $60. A flurry of media
attention covered the rise and fall. On Wednesday, the price of a
Bitcoin fluctuated between $103 and $111.

Thompson Clark, an editor at financial intelligence company Agora
Financial, outlined the reasons why Bitcoin could outlive the
media hype. In times of global economic instability, precious
metals and cryptocurrencies such as Bitcoin become more
attractive as expressions of value that aren't subject to
government manipulation. Fiat currency loses value over time due
to inflation, whereas Bitcoin so far has been a deflationary
currency, meaning that it gains in value over time despite
fluctuations in its exchange rate. The limited supply of bitcoins
-- there will never be more than 21 million in existence -- means
that demand alone will determine its value.

And there are social benefits too, according to the panelists.
"Fiat currency encourages consumption," and that leads to planned
obsolescence of consumer products and waste that harms the
environment, said Clark. In a world where money keeps its value
for longer periods of time, or actually increases in value over
time, people will be more thoughtful about how they spend it, he
said.

As for that all-important question posed by Pierce? It's too soon
to tell, he said. But everyone on the panel said they think that
Bitcoin will continue its move into the mainstream. "It's just a
better money," Clark said.